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Rising competition and introduction of new ways of capturing large amounts of customer data has necessitated advancement in capabilities of organizations to foresee and fulfill customer needs and wants.
Ever more B2C concerns are going all-out to Design Customer-centric organizations. Organizations pursuing Customer-centricity depend on some type of Market Segmentation. Market Segmentations assist in understanding the customer more intimately.
This understanding has to be based on solid data. Even though the collection of customer data is at its highest of all time, organizations are still finding it difficult to apply the insights being offered by Customer Segmentation to propel Change and enhance Performance. This is the Customer Data Paradox. With more customer data, it has ironically become more difficult to derive useful insights from the data.
Data-driven enterprises are sensing that their Segmentation endeavors have been unable to provide anything near the extent of benefit they should. Cause for such failure is development of Segmentations founded on contradictory Business Purpose; purposes that are not widely comprehended or communicated or cannot be immediately acted upon.
Segmentation is indispensable to the process of dealing with the intricacies of constantly evolving and dividing customer clusters and their diverse demands. Need for developing a company-wide Operating Model that is able to transform this extensive data into valuable information so as to enable improved Go-to-Market decisions is essential.
This intricate Segmentation process can be handled more effectively by following the 4-phase approach to Customer-centric Segmentation:
- Delineate Purpose
- Plan around Purpose
- Functionalize Segmentation
- Control Implementation
Segmentation offers clarity and insights regarding customer behavior, tendencies, and proclivities.
Customer Segmentation also amplifies the chances of effectiveness of Marketing and Customer Experience management campaigns, and impelling Brand Positioning and Product Development.
Let us look at the 4 phases in detail.
Delineate Purpose
Clearly defining and understanding the Purpose of Segmentation is necessary to set the base for the type of Segmentation effort that is required to be undertaken—i.e., Strategic or Tactical or both.
Strategic Segmentation is applied for all-embracing, enterprise-wide purposes. Tactical Segmentation is adopted for a far more precise purpose.
Goal is to guarantee that Segmentation results in distinct processes and actions that augment Performance.
Plan around Purpose
Segmentation research needs to be meticulously planned to manifest the Purpose decided, and to make certain that the outcomes are insightful, practicable, and discernable.
Segmentation research has to encompass several dimensions such as behaviors, outlooks, demographics, channel use, inclinations, and profitability.
Functionalize Segmentation
This phase involves determining changes that will take place in the decision processes and communicating them to the concerned business partners so as to deliberate on and devise adjusted metrics that reflect the new capabilities.
Control Implementation
Means for administering change—directed and customized communications arranged to stimulate understanding, interaction, and approval—are required to be utilized completely.
Interested in learning more about Customer-centric Segmentation? You can download an editable PowerPoint on Customer-centric Segmentation here on the Flevy documents marketplace.
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“Strategy without Tactics is the slowest route to victory. Tactics without Strategy is the noise before defeat.” – Sun Tzu
For effective Strategy Development and Strategic Planning, we must master both Strategy and Tactics. Our frameworks cover all phases of Strategy, from Strategy Design and Formulation to Strategy Deployment and Execution; as well as all levels of Strategy, from Corporate Strategy to Business Strategy to “Tactical” Strategy. Many of these methodologies are authored by global strategy consulting firms and have been successfully implemented at their Fortune 100 client organizations.
These frameworks include Porter’s Five Forces, BCG Growth-Share Matrix, Greiner’s Growth Model, Capabilities-driven Strategy (CDS), Business Model Innovation (BMI), Value Chain Analysis (VCA), Endgame Niche Strategies, Value Patterns, Integrated Strategy Model for Value Creation, Scenario Planning, to name a few.
Learn about our Strategy Development Best Practice Frameworks here.
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– Roderick Cameron, Founding Partner at SGFE Ltd
Site Selection is the practice of choosing a new facility location. It involves measuring the needs of a new project against the merits of potential locations. The practice became popular during the 20th century, as operations of many organizations expanded to new geographies on a national and international scale.
Selection of sites has been known to have taken place due to factors such as:
- Best required skills being available in a particular city.
- Setting up in an off-the-trail location because all operations will be managed remotely.
- Following the trend to set up offices and facilities in a particular city because every company is doing so.
- Factory facilities of the company being close-by.
- Top boss living in the vicinity.
- Person tasked with choosing the site liking the area for a particular feature such as restaurants and the like.
Making such significant long-term choices based on haphazard and indifferent reasons is a blunder. The consequences of the mistake are exacerbated when such sites are being selected in emerging markets.
Site selection, in particular, for R&D, Design, and Engineering, warrants a more serious approach than is given to it. Employing a formalized selection method aids in eliminating sentiment in the concluding decision. The orderly selection procedure is also valuable in conveying the ultimate decision to all involved. Selection criteria and their priority should be agreed to in advance for removal of any partiality from the Site Selection process.
Site Selection, especially when being done in emerging markets, has to be conducted while considering at least 5 factors—or the 5 Cs of Site Selection. Companies ought to identify which among the 5 factors they deem significant and prioritize the factors accordingly:
- Cost
- Capacity
- Capability
- Communications
- Culture
Selecting a site in light of the set priority order, the company has to take into consideration the characteristics of the site in the present time as well as in 3 to 5 years.
Let us delve a little deeper into some of the factors.
Cost
Ideally, Cost Reduction should not be the only factor influencing site selection decisions. If Cost factor is predominant in the decision, then the local standard of living and the changes there to, have to be taken into consideration. Costs in setting up a site include items such as:
- Buying or leasing land.
- Office equipment costs.
- Communication infrastructure and operations costs.
- IT infrastructure costs.
- Employee Training costs.
Companies basing their decisions exclusively on Cost factor rather than what suits their requirements end up paying more than estimated.
Capability
Capability is the ability of the site under consideration to provide the necessary infrastructure, resources, and the work/ operational environment required by the company. Capability includes existence of exclusive skills and expertise that a company explicitly needs.
Also advantageous to capability are nearby R&D, design, testing, and prototyping centers setup by foreign and local companies.
Capacity
Capacity refers to the abundance of qualified skill available on the site under consideration. Capacity comes into play when the company needs rapid scaling up of its operations.
Although the 5 Cs are of extreme significance, there is an additional factor that cannot be ignored—the Customer. Recent advances in technology and communication have further empowered the Customer. The result is that more organizations are seeking to focus on Customer-centric Design.
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– Roderick Cameron, Founding Partner at SGFE Ltd
Futuristic, technology-driven business models are weakening the conventional advantages of Economies of Scale. Large corporations, founded on Scale, nevertheless have areas that they can exploit if they reposition rapidly.
For the best part of over a century, Economies of Scale—Cost Advantages that businesses achieve owing to their scale of operation—fashioned the corporation into a perfect engine of business. The economic concept of Economies of Scale was first floated in the Adam Smith era where the idea of obtaining larger production returns through the use of division of labor was introduced.
A technological rush, distinct in history, was observed near the beginning of the 20th century. These new technologies were accompanied by scale i.e., bulk production and access to huge markets. The Economies of Scale guided business success—the strong inverse relationship connecting fixed costs and output grew into a basis of Competitive Advantage.
Back then, investments in scale was the most sensible proposition. Not only did it lower fixed costs but also created a formidable barrier for competitors, denying them entry in the market. Every type of business spent the 20th century in the quest for scale.
The advent of game-changing new technologies such as mobile devices, social media, and cloud computing, augmented by Artificial Intelligence (AI), is whirling Economies of Scale into Economies of Unscale.
Specifically, rise of Software as a Service (SaaS) and emergence of Product to Platform Transformations—coupled with AI’s ability to customize—overthrows bulk production and mass marketing as a basis of Competitive Advantage. These progressions have battered the powerful inverse correlation between fixed costs and output that delineated Economies of Scale.
Today, minor, unscaled businesses, leveraging Platform Scaling Strategies while renting SaaS, can hunt in niche markets, effectively contesting big companies that are strained by decades of investment in scale, i.e., in large-scale production, distribution, and marketing.
The triumphant companies in the current tech rush—enabled by Platforms and SaaS—are the ones led by Customer-centric Design, providing each customer precisely what they want, that too while making a profit, and not companies offering everyone uniform products.
Large corporations can remain relevant in this era of niche marketing by taking leverage of their existing infrastructure through astute modifications in their use. They can deploy 3 key tactics to accomplish this:
- Product to Platform Transformation
- Absolute Product Focus
- Dynamic Rebundling
Let us delve a little deeper into the details of the 3 tactics for leveraging Economies of Unscale.
Product to Platform Transformation
Dynamic corporations have expended decades building scale which is extremely specialized for their industry. Efficient factories, distribution channels, retail outlets, supply chains, marketing expertise, and global partnerships have been painstakingly developed. It is time for these corporations to take a decision on whether it is more viable to rent out this capability to other companies or not.
An example of such an approach is that of P&G’s Connect + Develop program that has been running for more than a decade.
Absolute Product Focus
As corporations become bigger, emphasis on control becomes more pronounced—processes, regulations, stock prices, and a variety of non-core issues take precedence over great product offering. Niche market focus blurs and attempts are made to make a product that may appeal to the masses in an effort to create Economies of Scale.
In this age of Unscale, the product/customer-focused competitor preys on such weakness. Large corporations can mitigate the repercussion of such weakness by organizing as a network of small businesses focusing on core function while outsourcing non-core functions. Each business, completely dedicated to creating a product perfect for its part of the market.
Apple Inc. contracts out manufacturing to Chinese companies while keeping the R&D and innovation—its core function—in the U.S.
Dynamic Rebundling
Successful companies in this day and age of Unscale are the ones that make every customer feel like a market of one. A corporation—a compendium of products—can match this by initially understanding its customer, then bundling its products as per each customer’s needs.
A great example is The Honest Co., which in 2012, began selling specialized line of diapers and wipes by subscription. First year, the company raked in $10 million in revenue by supplying a niche customer, a niche product, dissimilar to mass-market brands. By 2016 it was making sales exceeding $300 million.
Interested in learning more about the 3 tactics for leveraging Economies of Unscale and how corporations have, in their own way, taken advantage? You can download an editable PowerPoint on Economies of Unscale here on the Flevy documents marketplace.
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“Strategy without Tactics is the slowest route to victory. Tactics without Strategy is the noise before defeat.” – Sun Tzu
For effective Strategy Development and Strategic Planning, we must master both Strategy and Tactics. Our frameworks cover all phases of Strategy, from Strategy Design and Formulation to Strategy Deployment and Execution; as well as all levels of Strategy, from Corporate Strategy to Business Strategy to “Tactical” Strategy. Many of these methodologies are authored by global strategy consulting firms and have been successfully implemented at their Fortune 100 client organizations.
These frameworks include Porter’s Five Forces, BCG Growth-Share Matrix, Greiner’s Growth Model, Capabilities-driven Strategy (CDS), Business Model Innovation (BMI), Value Chain Analysis (VCA), Endgame Niche Strategies, Value Patterns, Integrated Strategy Model for Value Creation, Scenario Planning, to name a few.
Learn about our Strategy Development Best Practice Frameworks here.
Do You Find Value in This Framework?
You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:
“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”
– Bill Branson, Founder at Strategic Business Architects
“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”
– David Coloma, Consulting Area Manager at Cynertia Consulting
“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”
– Roderick Cameron, Founding Partner at SGFE Ltd
The phenomenal success of tech innovators using Platforms has spurred a desire in companies, from a greater variety of sectors and markets, to gain advantage of Product to Platform Transformation.
This Transformation is based on the need to model businesses on a Customer-Centric Design approach. The need has arisen because the concept of Economies of Scale has become archaic and has been taken over by Economies of Unscale. Each customer is now being offered customized products and solutions.
The phenomenal success, by the trailblazing tech innovators, was achieved partly by deploying Platform Scaling that enabled Business Transformation and monopolization of the market. Though, this monopolization and questionable use of the Platform, especially data generated therefrom, saw attempts to regulate these tech companies—making the decision to scale a complex one. Understanding the intricacies of Platform Scaling is thus critical to the development and deployment of any Platform Strategy.
When considering Platform Scaling Strategy, there are 2 key aspects that are of utmost significance:
Regulatory Complexity
Regulatory Complexity means present level of legal and regulatory impediments that govern Platform entry and operation in a sector.
Regulatory Risk
Regulatory Risk refers to the probability of an upsurge in Legal and Regulatory Costs and Complexity in the future.
Some equitable and measurable metrics for calculating Regulatory Risks do exist but generally it is extremely challenging to predict policy outcomes or even ascribe odds to various outcomes.
A straightforward approach for Platform owners and operators to understand and evaluate the prospective combinations of Regulatory Complexity and Risk is to create a 2×2 matrix of high vs. low for the 2 factors.
Regulatory Complexity and Risk are turning out to be the determining factors in the strategic decision between Fast and Slow Scaling.
Fast Scaling, which has also been referred to as Blitzscaling, requires choosing speed over efficiency. Fast Scaling has the strategic objective of growing briskly, experimenting swiftly to tweak product-market fit, and taking advantage of robust network effects to achieve and maintain a leading market share.
Fast Scaling is required to activate 3 interconnected positive feedback loops:
- Network Loop
- Data Loop
- Capital Loop.
Slow Scaling is the most sensible strategy in areas with both High Regulatory Complexity and High Regulatory Risk. Slow Scaling does not disregard the quest for network effects, which are a requirement for success of platform businesses, but it gives preference to analysis, constant growth, and risk curtailment instead of speed.
Platform businesses functioning in High-Risk, High Complexity situations may evade pitfalls by employing 4 key components of Slow-Scaling strategy:
- Analysis of the Macro Environment
- Careful Risk Management
- Investment in Stakeholder Trust
- Incremental Geographic Expansion.
Let us now delve a little deeper into the various permutations of Regulatory Complexity and Risk, quadrant-wise, in the matrix.
QUADRANT 1
Regulatory Risk Regulatory Complexity
Low Low
Compliance costs are comparatively low in such situations and there are no serious deliberations among regulators and policy makers concerning restrictions on business models or operations.
The Strategy in this case is to Scale Fast.
QUADRANT 2
Regulatory Risk Regulatory Complexity
Low High
Sectors in such scenarios are highly regulated e.g., financial services sector. Significant workforce is employed in governance, risk management, and compliance activities. Entering such markets necessitates careful consideration of Regulatory Complexity.
The strategy in such scenarios is to Scale Fast.
QUADRANT 3
Regulatory Risk Regulatory Complexity
High Low
Operations are generally in a Regulatory void—i.e., no established and powerful regulatory authority, tight net of rules, or strict barriers to entry. There is a great degree of ambiguity regarding how regulators may react. Environment in such markets makes it difficult for businesses to mature discrete policy scenarios, allocate probabilities, and make strong assumptions on timing.
Strategy is to Scale Fast in such environments.
QUADRANT 4
Regulatory Risk Regulatory Complexity
High High
There is high Regulatory Complexity, such as unclear approach by various regulators in the various markets. There are strong chances of sudden change in regulator and policy maker’s approach due to a particular incident. Precipitous increase in entire sector’s Regulatory Risk triggered by events is highly likely.
The most sensible strategy in such cases is to Scale Slow.
Interested in learning more about the permutations of these 2 Scaling Strategies, areas of strategic focus, and the 4 components of Slow Scaling Strategy? You can download an editable PowerPoint on Platform Scaling Strategy here on the Flevy documents marketplace.
Do You Find Value in This Framework?
You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:
“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”
– Bill Branson, Founder at Strategic Business Architects
“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”
– David Coloma, Consulting Area Manager at Cynertia Consulting
“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”
– Roderick Cameron, Founding Partner at SGFE Ltd
Strategy is about the methods used to attain goals. It’s the “how” of achieving goals—desired future conditions and circumstances towards which effort and resources are spent until their achievement.
If Strategy has any meaning at all, it is in relation to some aim or end in view.
Strategy is 1 of the 4 dimensions of an enterprise structure:
- Goals of the organization.
- Resources at our disposal.
- Strategies for achieving above-mentioned goals –i.e., the methods used to deploy the resources.
- Tactics—i.e., the ways in which the deployed resources are used.
Strategy and tactics – integral part of Strategy Development – bridge the gap between goals and the methods used to achieve those goals. These 4 dimensions of enterprise structure relate to one or both of the 2 domains; Policy and Management. Policies determine the goals of an enterprise, whereas attaining goals is typically a matter of Management. Tactics belong to the managers; strategy is the combined realm of the governors and managers; whereas resources are controlled jointly.
The employed resources through use of Strategies and Tactics give us “certain” conditions. Inspecting them in light of the “desired” conditions enables us to determine future employment of the resources and thus emerges a pattern of actions and decisions which makes Strategy an adaptive and evolving view of what is required, to achieve goals.
We take a look at various perspectives on and definitions of Strategy, as explained by 8 of the most impactful and renowned Strategists in modern times. Familiarity with the perspectives of these strategists enables us to develop a more holistic and thorough understanding of the topic, helping us improve our strategic thinking, decision making, and analytical skills. All of these experts agree on the fact that Strategy is a means to implement a policy or a view envisioned by those who matter. Let’s see how the following strategists define Strategy:
- Michael Porter
- Henry Mintzberg
- Treacy and Wiersema
- H. Liddell Hart
- George Steiner
- Kenneth Andrews
- Kepner-Tregoe
- Michel Robert
Let’s break down how a few of these renown strategists define “Strategy.”
Michael Porter
Michael Porter, the father of modern Business Strategy, views Competitive Strategy as “intentionally opting a collection of activities that are dissimilar to the competitors in order to provide a unique mix of value”– i.e. Competitive Advantage. Porter states that Strategy is about:
- A competitive position.
- Differentiating yourself in the eyes of the customer.
- Adding value through a collection of activities different from competitors.
Henry Mintzberg
Mintzberg is credited with co-creating the Organigraph. He has written extensively on management and business Strategy. His contribution to Organizational Theory in the form of “The Organizational Configurations Framework” is a model that describes 6 valid organizational configurations or Organizational Design.
Mintzberg argues that the contrast of changing realities with intentions necessitates accommodation, generating Strategy. According to him Strategy is a combination of:
- The Perspective – Vision and Direction.
- The Position – Decisions to offer particular products or services in particular markets.
- The Plan – a means of getting from here to there.
- A Pattern in actions over time – for example, a company that regularly markets very expensive products is using a “high end” Strategy.
Treacy and Wiersema
Treacy and Wiersema’s Value Discipline Model talks about 3 different value disciplines: Customer Intimacy, Product Leadership, and Operational Excellence. Their research on market leading organizations reveals that they outdid their competitors through mastering 1 of these 3 disciplines.
Treacy and Wiersema assert that companies achieve leadership positions by narrowing, not broadening, their business focus on any one of the following:
- Operational Excellence – lead the industry in terms of price and convenience and is based on the Strategy of production and delivery of products or services. It implies world-class marketing, manufacturing, and distribution processes.
- Customer Intimacy – Long-term customer loyalty and customer profitability is based on the Strategy of tailoring and shaping products to the increasingly fine definitions of Customer-centric Design.
- Product Leadership – concentrates on quick commercialization of new ideas. It hinges on market-focused R&D as well as organizational nimbleness and agility.
Interested in learning more about the 8 definitions of Strategy? You can download an editable PowerPoint on 8 Perspectives on Strategy here on the Flevy documents marketplace.
Want to Achieve Excellence in Strategy Development?
Gain the knowledge and develop the expertise to become an expert in Strategy Development. Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.
“Strategy without Tactics is the slowest route to victory. Tactics without Strategy is the noise before defeat.” – Sun Tzu
For effective Strategy Development and Strategic Planning, we must master both Strategy and Tactics. Our frameworks cover all phases of Strategy, from Strategy Design and Formulation to Strategy Deployment and Execution; as well as all levels of Strategy, from Corporate Strategy to Business Strategy to “Tactical” Strategy. Many of these methodologies are authored by global strategy consulting firms and have been successfully implemented at their Fortune 100 client organizations.
These frameworks include Porter’s Five Forces, BCG Growth-Share Matrix, Greiner’s Growth Model, Capabilities-driven Strategy (CDS), Business Model Innovation (BMI), Value Chain Analysis (VCA), Endgame Niche Strategies, Value Patterns, Integrated Strategy Model for Value Creation, Scenario Planning, to name a few.
Learn about our Strategy Development Best Practice Frameworks here.
Do You Find Value in This Framework?
You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:
“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”
– Bill Branson, Founder at Strategic Business Architects
“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”
– David Coloma, Consulting Area Manager at Cynertia Consulting
“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”
– Roderick Cameron, Founding Partner at SGFE Ltd
Companies looking to improve efficiency and reduce costs can gain significant ground in the Supply Chain Management function by incorporating Lean Management and Six Sigma techniques.
Reason this area has gone under the radar is that companies do not consider Supply Chain to be their core competency.
Not only Warehousing but Transportation also has almost the same potential in terms of opportunities for Cost Reduction and Process Improvement. The approach to Transportation Costs Reduction, though, is different to that of Supply Chain Cost Reduction in Warehousing. This is in part due to the complexity in Transportation Costs, as the costs come from numerous widely distributed individual operations every year.
The approach to Supply Chain Cost Reduction in Transportation encompasses 2 phases:
- Understand the Baseline
- Identify and Implement Opportunities
Let us delve a little deeper into the 2 phases.
1. Understand the Baseline
Improvement in Transportation operations is hindered, in most cases, by enormous variability in operations, diverse service levels being demanded by various customers, and a multitude of transport providers delivering services in a variety of ways.
Transportation Costs of between 20-30% can be saved by compiling a complete perspective of the overall Transportation operations of an organization. The evaluation will also reveal essential service categories that have a skewed effect on Cost.
2. Identify and Implement Opportunities
Identification of the Cost Drivers is imperative for the companies to develop a systematic approach to Transportation Cost Reduction. This systematic approach involves observing 4 main levers of Cost Optimization opportunities:
- Compliance with Contracted Price
- Negotiated Price
- Contract Terms
- Customer Breakpoints and Behavioral Changes
The 4 levers of Cost Reductions help in countering the issues impacting Transportation Costs and enabling significant savings.
Significant Cost Reductions can be gained by identifying mutual benefits and risks for both companies and suppliers in addition to understanding customer breakpoints that enable Customer Centric Design.
Let us consider a few instances where Cost Reduction can have a quick impact.
- Companies, often, have to pay substantial fuel surcharges for waiting time or late payments—caused by variance in actual delivery patterns and the delivery pattern specified in the contract.
- Suppliers usually charge a higher rate to compensate for inefficiencies in their operational structure. Understanding those inefficiencies helps identify significant savings potential.
- Logistics Service Providers either increase their rates or add fuel surcharges in order to protect themselves from the effect of fluctuating fuel prices. A fixed rate benefits the customer when fuel prices go up, but creates needless high fuel bills when prices are down.
- Ordering habits of certain customers add to the Transportation Costs. For example, unknowingly ordering early next-day deliveries, without an absolute necessity for it, causes significant (20% in some cases) extra cost than a delivery at noon. A 24-hour delivery time costs even less than the noon delivery.
Interested in learning more about the phases and cost drivers of Supply Chain Cost Reduction in Transportation? You can download an editable PowerPoint on Supply Chain Cost Reduction: Transportation here on the Flevy documents marketplace.
Want to Achieve Excellence in Supply Chain Management (SCM)?
Gain the knowledge and develop the expertise to become an expert in Supply Chain Management (SCM). Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.
Supply Chain Management (SCM) is the design, planning, execution, control, and monitoring of Supply Chain activities. It also captures the management of the flow of goods and services.
In February of 2020, COVID-19 disrupted—and in many cases halted—global Supply Chains, revealing just how fragile they have become. By April, many countries experienced declines of over 40% in domestic and international trade.
COVID-19 has likewise changed how Supply Chain Executives approach and think about SCM. In the pre-COVID-19 era of globalization, the objective was to be Lean and Cost-effective. In the post-COVID-19 world, companies must now focus on making their Supply Chains Resilient, Agile, and Smart. Additional trends include Digitization, Sustainability, and Manufacturing Reshoring.
Learn about our Supply Chain Management (SCM) Best Practice Frameworks here.
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Most of us have experienced a uniqueness in some organizations. These organizations stand out, exude fervor and zeal. Their customers are pleased with the Customer Centric Design of the company, Employee Engagement is high, and investors and shareholders take pride in being part of it. It is not their exceptional product or service that is the base of Value Creation rather the Purpose that makes organizations unique—their reason for existence and the resulting impact it makes on the world.
Stakeholders identify with organizations that genuinely follow their Purpose. Leadership allocates resources in-line with the Purpose. Employees keep the Purpose front and center while making decisions for the company. On the other hand, in-genuine Purpose may harm the reputation of the company by turning away the stakeholders.
In order to be genuine, Purpose has to be embedded in the company’s DNA, which is no mean task. The “5 Ps of Purpose Framework” shows how this can be successfully achieved. The 5 Ps Framework identifies 5 areas of focus:
- Product Portfolio Strategy
- People & Culture
- Processes & Systems
- Performance Metrics
- Positions & Engagement
There are numerous benefits to transforming into a Purpose-driven Organization. The 5 Ps Framework contributes to unlocking the sources of value for the company and detect points of weakness. Purpose can pay lots of dividends, but it has to be authentic and imbued in the organization’s business model.
Let us delve a little deeper into the first P of the 5 Ps of Purpose.
Product Portfolio Strategy
An organization’s Product / Service offerings and the associated modalities of market and position planning that best cater to the target market ought to imbibe the Purpose of the company in order to appeal to the stakeholders.
The 1st step for achieving this objective has to be the alignment of business portfolio with the company’s Purpose–i.e. we need to integrate Purpose with our Portfolio Strategy. Companies already in existence may not be able to start afresh but they can surely reshape their business mix in a dynamic and resolute manner.
In step 2, the business portfolios are filled out with Products or Services that match the Purpose, and the ones that do not are rooted out. Certain key actions are needed to embed Purpose into the Product or Service offering, they include:
- Rethinking product portfolio — for example pulling out certain products, launching new products.
- Modifying pricing in line with Purpose.
- Re-evaluating portfolio and testing rationale of individual assets in light of common criteria.
A case example is an energy company in the extractive industries, founded 85 years ago, which has proved successfully that Purpose can be reinvented. Being in the extractive business for such a long time has not restricted the company from reexploring what an energy company may look like in the transforming environment of the future.
The company has significantly transformed its Purpose — “reimagining energy for people and planet.” In line with its Purpose, the company has divested from its petrochemicals businesses and plans to reduce its legacy oil and gas business by 40% by the year 2030. The company will instead augment its low-carbon energy businesses such as bioenergy, hydrogen, electric vehicle charging businesses, and aims to be a net-zero carbon emitter by the year 2050.
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You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:
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“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”
– David Coloma, Consulting Area Manager at Cynertia Consulting
“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”
– Roderick Cameron, Founding Partner at SGFE Ltd
Organizations typically focus on Customer-centric Design in their Strategic Planning and overlook the critical driver of Performance, Growth, and Operational Excellence—their employees. With cut-throat competition now the norm the realization has become clearer that employees are:
- The face of the business and create lasting—or perishing—brand impression.
- Sources of innovation and organizational knowledge.
- Representation of the company’s service philosophy.
- Expected to live by its Organizational Culture and values.
Employee Engagement has emerged as one of the significant pillars on which the Competitive Advantage, Productivity, and Growth of an organization rests. What, exactly, does it mean when an employee is engaged? Employee Engagement, over the years, has been thought of in terms of:
- Personal engagement with the organization.
- Focus on performance of assigned work.
- Worker burnout.
- Basic needs (meaningful work, safe workplace, abundant resources).
- Attention on Cognitive, Emotional and Behavioral components related to an individual’s performance.
Although Employee Engagement is widely seen as an important concept, there has been little consensus on its definition or its components either in business or in the academic literature.
Kumar and Pansari’s 2015 study define Employee Engagement as:
“a multidimensional construct that comprises all of the different facets of the attitudes and behaviors of employees towards the organization”.
The multidimensional construct of Employee Engagement has been synthesized into the following 5 components (or dimensions).
- Employee Satisfaction
- Employee Identification
- Employee Commitment
- Employee Loyalty
- Employee Performance
The 5 dimensions of Employee Engagement have been found to have a direct correlation with high profitability, as substantiated by a number of research studies:
For instance, a study of 30 companies in the airline, telecom and hotel industries shows a close relationship between Employee Engagement and growth in profits. After controlling other relevant factors—i.e., GDP level, marketing costs, nature of business, and type of goods, the study found:
- Highest profitability growth—10% to 15%—in companies with highly engaged employees.
- Lowest level of profitability growth—0% to 1%—in companies with disengaged employees.
Research reveals that Employee Engagement affects 9 performance outcomes; including Customer Ratings, Profitability, Productivity, Safety Incidents, Shrinkage (theft), Absenteeism, Patient Safety Incidents, Quality (Defects), and Turnover.
The differences in performance between engaged and actively disengaged work units revealed:
- Top half Employee Engagement scores nearly doubled the odds of success compared with those in the bottom half.
- Companies with engaged workforces have higher earnings per share (EPS).
These 5 dimensions become the base for measuring Employee Engagement in a meaningful manner that permits managers to identify areas of improvement. To assess an organization’s current status of Employee Engagement, a measurement system is needed that includes:
- Metrics for each component of Employee Engagement.
- A scale for scoring metrics in each component.
- A comprehensive scorecard that pulls everything together.
Let us delve a little deeper into the first 2 dimensions of Employee Engagement.
Employee Satisfaction
Definition
Employee Satisfaction is the positive reaction employees have to their overall job circumstances, including their supervisors, pay and coworkers.
Details
When employees are satisfied, they tend to be:
- Committed to their work.
- Less absent and more productive in terms of quality of goods and services.
- Connected with the organization’s values and goals.
- Perceptive about being a part of the organization.
Metrics
The 5 metrics that gauge Employee Engagement in terms of Employee Satisfaction include:
- Receiving recognition for a job.
- Feeling close to people at work.
- Feeling good about working at the organization.
- Feeling secure about the job.
- Believing that the management is concerned about employees.
We take a look at another dimension central in significance.
Employee Commitment
Definition
Signifies what motivates the employees to do more than what’s in their job descriptions.
Details
Employee Commitment is much higher for the employees who identify with the organization. This element:
- Develops over time and is an outcome of shared experiences.
- Is often an antecedent of loyalty.
- Induces employees to guard the organization’s secrets.
- Pushes employees to work for organization’s best interests.
Research has found that employees with the highest levels of commitment:
- Perform 20% better.
- Are 87% less likely to leave the organization.
Metrics
The 3 metrics that gauge the Employee Commitment dimension of Employee Engagement include:
- Commitment to deliver the brand promise along with knowledge of the brand.
- Very committed to delivering the brand promise.
- Feels like the organization has a great deal of personal meaning.
Interested in learning more about these foundational pillars to Employee Engagement? You can download an editable PowerPoint on 5 Dimensions of Employee Engagement here on the Flevy documents marketplace.
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Supply chain thinking used to be limited to the managers of a few global companies—companies that were struggling to coordinate internal information and 
materials. This, however, led to an exciting boom in cross-business coordination based on Supply Chain Management concepts.
Today, the field has broadened and shifted over time. Current supply chain trends—differentiation, outsourcing, compression, and collaboration—are being used to restructure supply networks and improve coordination. As more companies integrate their networks, capabilities are improving. The levels of product customization and business complexity are also increasing. As this continues, Supply Chain Management is being used in new ways to create uniquely defined customer relationships anchored on appropriate Customer-centric Design.
The field of Supply Chain Management will continue to influence companies. The best way to understand the impact of a long-term trend is to examine how the trend has changed the way executives view their businesses and what issues they choose to focus on.
Rationale Behind Supply Chain Management
Supply Chain Management is the design, planning, execution, control, and monitoring of supply chain activities. It is the management of the flow of goods and services. Essentially, Supply Chain Management addresses the fundamental business problems of supplying products to meet demand in a complex and uncertain world.
Conceptually, Supply Chain Management draws on the value chain concept of business strategist, Michael E. Porter. It conveys the idea of looking at the supply chain issue at the multi-company level.
As the global business environment becomes more complex and competitive, there have been shorter product life cycles and greater product variety. Due to this, it has increased supply chain costs and complexity. The birth and growth of outsourcing, globalization, and business fragmentation has resulted in a crucial need for supply chain integration. Coupled with advances in information technology, this has led to the creation of greater opportunity for Supply Chain Management.
Why is Supply Chain Management essential at this time? There is now an increasing need to create net value, build a competitive infrastructure, leverage worldwide logistics, synchronizing supply with demand, and measure performance globally. Only Supply Chain Management has a systematic process to satisfy these increasing demands.
With the increasing application of Supply Chain Management, there have been shifts in the view of management and influencing Strategy Development.
The 6 Core Pillars of Supply Chain Management Thinking
The 6 Core Pillars of Supply Chain Management Thinking are the major shifts that have redefined management’s view which is far different from traditional Supply Chain thinking.
The first Core Pillar is Multi-company Collaboration. This is the shift from cross-functional integration to multi-company collaboration. Traditionally, Supply Chain thinking was focused on integrating within their companies. But with the new Supply Chain Management perspective, the focus now is on integrating across companies to coordinate and improve supply.
With the shift in thinking, what is asked now is how do we coordinate activities across companies, as well as across internal functions, to supply products to the markets. This is a great deviation from the traditional thinking which ask how do we get the various functional areas of the company to work together to supply product to our immediate customers.
With the first Core Pillar, we get to achieve significant breakthroughs. There are lower supply chain-related costs and improved responsiveness within a chain of companies.
The very essence of Multi-company Collaboration is rethinking how organizations align goals and make decisions.
The other Core Pillars are Market Mediation, Demand Focus, Product Design Influence, Business Model Innovation, and Customized Offerings. Each core pillar is considered an enabler that has a vast impact on Supply Chains.
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Nowadays, sales reps who get to close the sale are those sales reps who get to discover the customer’s real problems. With life getting more hectic and people always 
on the rush, customers only prefer to spend more on the phone with sales teams who “gets it.” These are the sales reps who do not only get to discover the customer’s real problem but also get to help them problem-solve in new ways.
Yet, a great number of salespersons miss closing the sale and reaching their quotas. In fact, in 2018, Salesforce found that more than 57% of sales representatives are expected to miss quotas for the year. This can be a challenge more so with organizations developing resolutions that revolve around increasing sales metrics and implementing new technologies.
The traditional method of selling is not enough anymore today. The first thing a client needs or wants does not necessarily solve the core problem. A new method is now necessary that will require salespeople to first diagnose the real problem before coming up with the solution. This comes with a new Customer-centric Design.
The Future of Sales: The Upcoming Trends Salespeople Must Watch Out For
A survey was conducted on more than 2,900 sales professionals worldwide. As a result of the survey, 5 Top Trends were revealed that are shaping up the world of sales. Two of these Top 5 Trends are changing sales mandate and the emergence of a Data-driven Sales Playbook.
- Trend 1: As sales mandate change, teams are falling short of rising customer expectations. Technology is changing expectations on how companies should interact with consumers. It is now the salespeople who are on the frontline who are carrying the onus to deliver when customers demand more personalized consultative engagement. As a result, customer satisfaction has become the most-tracked sales Key Performance Indicator.
- Trend 2: A Data-driven Sales Playbook is emerging. The ingenuity of salespeople with data-driven insights have been amplified. With the richness of data available, this has led to more effective methods of lead prioritization and forecasting. There is now an increasing need for sales reps to prioritize leads based on data analysis rather than on intuition.
The effect of these Top 5 Trends has further been amplified with the increasing number of missed sales. Today, the traditional method of selling just does not work anymore.
A New Approach to Selling: A Problem-centric Selling
The traditional method of selling is focused on determining the prospects’ needs. This does not work anymore as the first thing a client needs or wants does not necessarily solve their core problems. There is now the need to shift to Problem-centric Selling.
Problem-centric Selling is an approach that diagnoses problems with as much specificity as possible. Often, the real problem is not well articulated by the potential buyer. With Problem-centric Selling, the specific customer needs are well identified thus enabling salespeople to better offer the right product or service. It is thus important to integrating the philosophy of Problem-centric Selling into your Sales Management approach.
The Problem-centric Selling is anchored on 5 core elements.
Problem diagnosis starts with knowing and understanding your customer and their problems. This is where the first core element is centered on: Know the key facts about the customer.
Salespeople must be able to get a description of the environment of which the buyer works, the processes they use, the structure of the organization, the tools they have, the current goals of the business, and other information about the buyer and the business. The facts gathered must go beyond the basic name, size of the company, and the industry the business is in. This way, the salesperson can get to establish the context for where the customers’ problems lie.
The other 4 Core Elements are essentially important in guiding every salesperson to master the Problem-centric Approach and hit that sale with a successful deal.
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